Foolish Forecast: 1-800-Flowers Sprouts

They say you should stop and smell the roses every once in a while. You know, to counteract the "Life is what happens to you when you're making other plans" syndrome? Today, we're here to remind you to do just that.

Four times a year, investors in 1-800-Flowers (NASDAQ:FLWS) get a chance to take a whiff of their company's updated financials, and tomorrow is one of those days. Will investors smile or sneeze at the fiscal Q3 2006 numbers? We'll know in less than 24 hours.

What analysts say:

• Buy, sell, or waffle? Eight analysts follow 1-800-Flowers today -- three fewer than three months ago. Also fewer? Buy ratings, which have fallen to three, and hold ratings, which declined to four. There's still just one sell.
• Revenues. Analysts will be looking for news of a 13% increase in sales, year over year. $177.2 million is the target.
• Earnings. The quarter's net loss is expected to contract from $0.03 last year to $0.01 this year.

What management says:
The big news of the last three months happened just two weeks ago, when 1-800-Flowers announced that it will be buying candy vendor Fannie May. Although the company is paying twice its own price-to-sales ratio to acquire the candy business, 1-800-Flowers expects to leverage its own sales network to grow Fannie May's current annual sales of $75 million. Those anticipated Internet-based sales can also reasonably be expected to improve on Fannie May's already respectable 16% EBITDA margin, bolstering the 3.2% EBITDA margin that 1-800-Flowers currently claims.

What management does:
When previewing 1-800-Flowers' fiscal Q2 2006 earnings report back in January, we noted that the company was promising improved margins this year. Lo and behold, actions are beginning to marry with words, since margins began to turn upwards last quarter. While they're still a far cry from the levels of 18 months ago, the gross number is headed back up, the operating margin improved by 50% (sequentially), and the net margin improved by 33% (also sequentially.)

One Fool says:
1-800-Flowers isn't entirely out of the briar patch yet. The improvements we've noted were just from one quarter's trailing-12-month totals to the next. Year over year, the comparisons still look ugly. Over the last six months, the company kept its cost of goods sold pretty well in check -- it rose 19% year over year, in lockstep with the 19% rise in total sales. However, selling, general, and operating costs raced ahead 24%. For margins to continue to improve, either the Fannie May acquisition has to pay off big time, or 1-800-Flowers needs to get its costs under control. Here's hoping that tomorrow, we hear sweet-smelling words on both fronts.

Fool contributor Rich Smith does not own shares of any company named above.